Q: Why are credit-card issuers jumping into the small-business market now?
A: There has been so much saturation in the consumer-card market that the banks have been moving into the business-card area. They had largely ignored it before because they just couldn't see the profitability in it. The charge-offs can be quite high. It's a risky area. Now they see it more as a relationship issue. From a defensive standpoint, you have to have this product in your portfolio.
Q: For an entrepreneur, what's the difference between signing up for another personal credit card and getting a business card?
A: It depends on the issuer. Sometimes, there's very little difference. MBNA typically issues its small-business card based on the owner's personal credit history. The card says it's a business card, but it would show up in the credit files like any other card would. Other issuers have cards based on the business's financials. You need to have financials for the last two or three years. American Express does it that way. Of course, they've still got the Social Security numbers of the principals, so when it comes to collection it works like a consumer card.
Q: How about credit limits?
A: You may not get a big credit line if the card is being issued strictly on the business's credit. On personal cards the credit limit can be very high. MBNA issues a lot of very high-limit cards. The $50,000 level limit is very common. For Capital One, the $20,000 to $30,000 range is kind of their upper limit.
Q: Are there any perks worth taking note of?
A: More issuers are making rewards cards out of their business card by adding mileage bonuses. Capital One just introduced miles on one of its business cards. Advanta has a strong campaign it unleashed the first of this year. And there are programs that, three years ago, would have been considered insane -- like giving miles back on your debit card. When the main revenue stream on many of these cards is merchant revenue, typically 2% on transactions, and you're giving back 1% on points, the margins get pretty thin.
For the business owner, it can be a very compelling deal. In some cases a business can have more than one employee on a card to help consolidate miles. Visa and MasterCard are working to build insurance into their card programs. Interfacing with a small business's accounting software will be a really big thing.
Q: Will these perks last if the economy slips?
A: A recession could give some pause to the market if we see an escalation in charge-offs, delinquencies, or even bankruptcies. There's no evidence of it yet. There is a lag in the numbers, but there has been no spike yet in delinquencies or charge-offs. Visa did say its moving average of bankruptcy filings upticked last quarter, so there have been a few rumblings.